How research is used in practice

Most working environments today suffer from severe information overload, and financial planning dealer groups and advisers are not free from these demands. In fact, with a larger number of research houses providing information on the market, one could argue that it’s worse than ever before.

For financial planning dealer group CIS Financial Services, having an objective third party to help sift through the “noise” is essential.

CIS managing director Tony McDonald says the group employs asset consultant John Parrish to help interpret the general research they receive from research houses.

“You have to be strategic, and turn that information into value-add and work out what works for your client and your own individual business,” McDonald says.

For smaller groups, the combination of market knowledge, further research and the adviser’s own ‘gut feeling’ supplements research.

Millennium Financial Services managing director Laura Menschik says while they obtain research from a number of sources, the size of the practice and her own position “on the ground” as a financial planner gives them more flexibility when determining product selection.

“We have a recommended list, both for compliance and for discipline within the firm, but being a boutique dealer with a small number of advisers in-house, I can look at authoring that recommended list possibly more readily than a large planning network,” Menschik says.

“There can be something that is quite specifically used for one or two clients, not at a broad level, and if you like something that has come on the market and have done sufficient due diligence, you might feel comfortable recommending that product, even though it might be something that hasn’t been rated by all the research houses.”

McMillan Financial Planning adviser and past Money Management Financial Planner of the Year Robert Kiddell says that further research by the adviser is crucial to making well-informed choices.

“In my view, it’s not sufficient to just select from a dealer approved list and provide the client with a one page summary that you have read,” Kiddell says. “Without trying to second guess what the research houses do, every adviser has a duty to do their own research on the products that they’re using.

“Five years ago, advisers were a lot more serious about researching key managers. Advisers seem to tend to focus more on the product offerings than the key operating capacities of the fund managers, and I think that’s an important and often undervalued part of the research process,” Kiddell says.

Kiddell, who uses Lonsec as primary research provider with a number of other services to fill in gaps in coverage, says when researching managers and funds, he tries to cast the net as wide as possible for information. He also values being able to discuss research issues with their provider.

“Lonsec’s ability to interact with its team is a strong point. Having a relationship where you can ring them up and talk about things is important,” Kiddell says.

The task of the dealer group research team is also to filter the information from the various research houses, and try to add value for their clients — the advisers.

Margaret Callinan, research manager for Retireinvest and Tandem Financial Advice, says that as well as looking at the available research on a certain fund, the research team must also consider how advisers can access the product — whether through a platform or direct — and issues relating to asset allocation and risk profiling.

“We spend a third to half of our time looking at and reviewing various product structures, and the rest of the time we produce value-add documents and research papers. We have a very highly skilled adviser base, so that means they have the skills to tailor individual portfolios to clients, but they need lots of background material to do that,” Callinan says.

Callinan also adds the huge proliferation of products, and the range of emerging asset sectors and structures over the last five years has changed the demands for information.

Aegis Equities Research head of managed investments research Angela Ashton agrees, but adds that many major research houses are not catering to these needs.

“I think a lot of the standard research houses are starting to miss the point in the way a lot of advisers run their business,” Ashton says.

“They’re looking for new ideas for portfolio construction, or looking to gain some insight into hedge funds and structured products.”

McDonald says that increasingly planning groups are differentiating their offering for target client segments. “Researchers need to start understanding that. They’ve got to start thinking about how they segment their own research and meet those needs.”